SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Strategies & Market Trends : The Covered Calls for Dummies Thread
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: Dr. Id who wrote (141)4/22/2001 3:33:37 PM
From: Judith Williams  Read Replies (1) of 5205
 
Id--

McMillan...advocates selling calls with much further out time horizons....Any opinions?

I think McMillan's contention is excellent proof that cc's are excellent for income but not so good as a hedge. In a volatile market I am just not comfortable with longer term option plays. Selling front-month calls gives you a little more control and you can then sell the following month's calls at expiration or roll them if the trade goes the wrong way.

Take mathemagician's NTAP example. NTAP closed on Friday at 23.55, almost double its low of 12 or so on 4/4. If NTAP closes at May expiration at 25, you pocket 1.45 for the underlying and 2.8 for the call (excluding brokerage), for 4.25 total or 18%. You are betting that given NTAP's quick recovery since 4/4 it will not reach 26.35 by May expiration, a gain of less than 3 or about 12% in a month.

For the Sept calls at 6.4, however, you are making a more pessimistic bet--that NTAP will gain only 6.4 in five months or about 27%.

While the absolute time value is greater for the outlying calls, on a per-day or month-by-month basis it is not.

And McMillan's thesis is even less help in sharply correcting markets--whether they are going up or down. In fast down markets the time premium does not make up for loss in the underlying and in fast up markets the underlying runs away from you.

--Judith
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2025 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News